Debt Rises For The Nations Farmers As Profits Decline And Our Government Spends $7 Billion On Farmer Subsidies

Our government continues to find new and innovative ways to waste taxpayer money, including buying off key constituencies (donors), all of which helps explain why our country is nearly $20 trillion in debt ($9 trillion of which has occurred during President Obama's term).

Now, the Department of Agriculture has announced that it will transfer $7 billion of the people's wealth to farmers this year, in what the agency calls “Agriculture Risk Coverage” and “Price Loss Coverage,” which are really just subsidies with fancy program names.

That's because prices for agricultural products have remained mostly depressed this year – good news for consumers, but not so much, apparently, for farmers; corn in particular has been down.

At $7 billion, notes Zero Hedge, those subsidy payments amount to about 10 percent of the USDA's forecast for aggregate farm income this year. In all, taxpayer handouts to farmers have gone up 35 percent from the $5.2 billion paid under these two programs in 2015.

Profits down, debt rising for the nation's farmers

Farmers growing a range of agricultural commodities receive support payments, but the vast majority of payments go to corn growers in the Midwest. (Corn, you may recall, is also used to manufacture ethanol, which has recently been found to increase pollution even more than petroleum, not to mention being far less efficient than burning gasoline.)

“This fall, USDA will be making more than $7 billion in payments under the ARC-County and PLC programs to assist participating producers, which will account for over 10 percent of USDA's projected 2016 net farm income. These payments will help provide reassurance to America's farm families, who are standing strong against low commodity prices compounded by unfavorable growing conditions in many parts of the country,” said Agriculture Secretary Tom Vilsack.

The problem, Zero Hedge notes, is multi-faceted. And there are a number of interests at stake.

First, farm profits have been falling steadily for years. In fact, real farm incomes are expected to fall below 2010 levels this year, slipping 34 percent from their recent peak in 2012, and 14 percent year-on-year.

Meanwhile, farm debt is rising at an incredible rate, climbing steadily since 1990 from less than $150 billion (collectively), to more than $350 billion. At the same time, farmers are now more leveraged than they have been since the early 1980s.

Less income means there are fewer dollars available for farmers to spend on new equipment – a decline of 31 percent year-on-year in 2016 – which means that the farm equipment and implement industries and those businesses that support them are also suffering earnings declines.

Our food production has gone into an economic death spiral

So what needs to happen? Two things, notes Zero Hedge: Farm prices need to recover – since farmer returns on investment have crashed to their lowest levels – or farmland prices need to quickly come down. The latter isn't likely, the site noted.

As much as the USDA is paying out in subsidies this year, the amount actually could have been higher. In announcing the payouts, the department said that it was required under provisions of the Budget Control Act of 2011 to reduce payments this year by 6.8 percent over those made last year.

What we have here is a dangerous situation with our food supply – and our budget.

As it stands, farmers cannot seem to make a profit unless they are compensated by taxpayers. Subsidies, therefore, have become an integral part of their revenue model.

But, at the same time, after decades of overspending and fiscal mismanagement, our elected leaders and presidents have our country the furthest in debt it has ever been. What happens someday when that debt bomb explodes? And it will, when interest rates finally go up, as they will have to at some point after being artificially deflated for years.